The Breakdown - Why a Norwegian Billionaire Is Betting on Bitcoin's Positive Environmental Potential

Episode Date: March 19, 2021

Today on the Brief Followup on the FOMC meeting $3.1M for an anonymous team Could we finally see a bitcoin ETF?  Our main discussion: Aker ASA’s new Seetee bitcoin division. NLW explores: Why a Norwegian billionaire is buying into bitcoin Why the move is part of a larger institutional shift  Why Seetee founder Kjell Rokke believes bitcoin can spur positive environmental change -- Earn up to 12% APY on Bitcoin, Ethereum, USD, EUR, GBP, Stablecoins & more. Get started at nexo.io -- Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW   The Breakdown is produced and distributed by CoinDesk.com

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexo.io, Casper, and NEM, and produced and distributed by CoinDes. What's going on, guys? It is Thursday, March 18th, and today we are talking about why a Norwegian billionaire is betting on Bitcoin's positive environmental potential. First up, however, let's do the brief. First on the brief today, a quick follow-up on the FOMC meeting from yesterday and the Powell press conference. Here's how Lynn Alden summed it up.

She tweeted, Powell reaffirmed today that they're not going to front-run inflation, not going to consider a taper of QE or a rate hike until their inflation measures spend some time above 2%. He pushed back a bit on the market beginning to price in some rate hikes. Lynn also summed up the market's immediate reaction as dollar down, gold up, stocks, up, Bitcoin up. But what about a day later? The Wall Street Journal's banner headline is Treasury Yields surge again. And specifically, they're talking about the 10-year Treasury yield moving from 1.641% yesterday to 1.731% today. Effectively, the market still doesn't believe the Fed, or

doesn't have conviction that the Fed is going to be able to keep this accommodative monetary policy the way it is for much longer. A quote from that piece, despite the signals that the Fed is sending, many investors think that the central bank will have to start raising interest rates as soon as as 2023 to combat an anticipated increase in inflation. The feds promised to support the economy now could even lead to faster rate increases later because it could help generate the type of inflation that has been largely missing over the past decade, these people argue. So effectively, nothing has changed and we're still in this cycle, and you can bet that next month at this time will probably be having the same conversation. Second on the brief today, an interesting

anonymous financing round for a defy primitive. Sometimes working in the Bitcoin and CryptoSpace is like having a preview of the future, and I think this is an example. Today, a deal was announced that Alchemics finance has raised $3.1 million of strategic financing in addition to $4.9 million from an over-the-counter token sale deal. This is a new DFI project that combines yield generation with a lending platform that allows drawing loans based on future income. What's interesting for me right now isn't actually the protocol, at least not for the purposes of this podcast. What's interesting is that the team behind the protocol is anonymous. Jason Choi, who, by the way, has a great podcast if you're interested in Defi, and who is an investor with the Spartan group, said that they arranged the entire thing

via memes and telegram. Now, anonymity is an important part of the future of many of these protocols, especially in a confusing and fast-changing regulatory landscape. I anticipate that this type of anonymous financing will become more common, and each time it happens, it de-risks the whole idea somewhat for the next anonymous. team. Third and last on the brief today, could we finally see a Bitcoin ETF question mark? The SEC has published Van Eck's latest Bitcoin ETF application. Van Eck were the first to put forth a gold ETF. They've been in this business a long time and they've been trying for years

for a Bitcoin ETF. The SEC publishing their application means that the formal review process is now kicked off. The SEC has 45 days from here to either accept or deny or extend the application. and in truth, it can extend the application up to 240 days, so it may not actually be the beginning of the end, even though the formal review phase is now underway. There's a lot of speculation that under new SEC chairman Gary Gensler, the organization will be more hospitable to a Bitcoin ETF. What's more, recent ETF approvals in Canada could theoretically put pressure on the US to have a version that is domestically regulated as well. But still, it is far from a sure thing and something we'll just have to keep watching. But with that, let's shift to our main discussion.

Some of you will have heard this story last week. I've actually had this podcast prepared for a couple days and it just keeps getting pushed out by news like the Morgan Stanley News yesterday, etc, etc. But I think it's really important for a couple reasons that I wanted to share. Kiel Roque is a Norwegian billionaire. He's worth about $5.46 billion. He started as a fisherman and built a global fisheries business. In the 1990s, he became the largest shareholder and eventually merged his company with Acre ASA, which is a holding company and an industrial investment company that has interests in oil, gas, maritime assets, and marine biotech. To get a sense of his view of money, he joined Bill Gates' Giving Pledge, which is a pledge for

billionaires to give away at least half of their money while they're still alive. And if we're giving a full background, we should note that Roke has actually served time in jail for corruption. That hit me as a big banner headline that we probably should dig into, but when I did look into it, it was a little bit underwhelming compared to what you might think, given that he's a billionaire. In 2007, he was convicted of fraudulently obtaining a license to captain a large pleasure boat and served 24 days of a 120-day sentence. So basically, it's not cool, but it's also not some crazy scandal,

especially given billionaires these days. With that out of the way, what is the news? Last week, Roque announced that Aker had established CT with a capitalization of 500 million NOC, about 58 million USD. CT has three parts of its strategy. The first is to, quote, use Bitcoin as our treasury asset and join the community. In Bitcoin speak, we will be hoddlers. So boom, new Bitcoin treasury holder added to the party.

In their announcement, they talk about wanting to be additive to the space, saying that they're already running open source Bitcoin payment servers on their team. The second part of CT's strategy is to establish a mining operation. I'm going to come back to how they describe this because it's kind of integral to the point that I want to make about this whole endeavor. Their third mission is to build and invest in projects and companies in the Bitcoin ecosystem. They specifically mention as exemplary user interfaces and micropayments. And they're doing this all in partnership with Blockstream. Looking for the best way to unlock your crypto's liquidity?

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But I wanted to get in a little bit more to what I find really interesting about this announcement. For one, it provides a sort of insight into who is winning recent arguments. When Roque is discussing in his letter announcing CT the content that got him and the team into the space, he mentions some recent Bitcoin critics, including Eric Townsend, Michael Green, and others. He also, however, mentions Nick Carter and Pomp, people who have debated Mike Green, so clearly we know who he thought came off the better in those conversations. Second, the way that they frame their engagement reinforces the larger institutional narrative which has been driving so much attention into this space. Here's the key line. Risk is not an obvious concept. What's commonly

considered risky is frequently not, and vice versa. We're used to thinking that cash is risk-free, but it's not. It's implicitly taxed by inflation at a small rate every year. It adds up. Central bankers have magically agreed that they should target 2% inflation, which implies that one-third of your money's worth is taxed away every 20 years. If it was 3%, almost half of it would be gone in that time. A third thing I found interesting is that there is a real bet on youth. As I mentioned, Roque as good as said, he was taking the side of pomp and Nick Carter over the macro gray hairs, but he also talked about meeting Jack Mahler's at strike, saying, I felt old in his company, but also very emboldened. A fourth interesting thing about the note is that he directly addresses

what if people use this for things we don't like, critique of Bitcoin. Interestingly, he turns this around to focus on the issues of surveillance capitalism, saying, that the greater threat than people being criminals on Bitcoin is the way that the existing financial system criminalizes regular people. Quote, I'm certain we need to fight back against unlawful access to information and that requires a new architecture. But the fifth point that I really want to dig into is around the discourse on electricity. Post-tether, this has returned as the number one fud category for Bitcoin, and Rokey comes straight at it. Here's the TLDR that they have right at the top of the letter. CT will establish mining operations that transfer stranded or

intermittent electricity without stable demand locally, wind, solar, hydropower, to economic assets that can be used anywhere. Bitcoin is, in our eyes, a load-balancing economic battery, and batteries are essential to the energy transition required to reach the targets of the Paris Agreement. Our ambition is to be a valuable partner in new renewable projects. Note, this is not we do Bitcoin cleaner. This is Bitcoin creates incentives and opportunities to actually achieve ambitious clean energy goals. Interestingly, Roque says that a big part of why he was skeptical of Bitcoin for a very long time was the energy issue. But then his frame shifted. I'm going to read a quick passage. So is it wasteful? To achieve the ambitions in the Paris Agreement, we need to vastly

increase electrification of society, which will drive higher demand for electrical power. But we need that electricity for renewable sources. Wind and solar are now cheap enough, but they are intermittent, meaning we can only produce when the wind blows and the sun shines. To transform it into baseload power that can be supplied at any given time, there's a tremendous need for batteries in all forms. Batteries are the missing piece in the puzzle to enable the energy transition. Remember, one liter of gasoline contains the equivalent of a little less than 10 kilowatt hours of energy, but less than 30% can be retained as useful power to move a vehicle because of the energy lost in an internal combustion engine. Regardless of where you live, I bet that the price per kilowatt

hour of useful energy and gasoline is extremely high relative to a little. electricity. You don't buy gasoline because you want the cheapest energy. You buy it because it's an excellent battery. Exxon is a battery company. The network consumes energy to ensure it remains secure. Remember, banks or government-regulated custodians, we pay fees to mediate trust. Bitcoin has solved that problem in a way where two parties can transact without verifying and trusting each other, circumventing the need for a third party like a bank. But the mechanism requires electricity. Enter the so-called miners. A miner uses electricity and is compensated with Bitcoins. The financiers of mining operations will insist on using the cheapest energy, and so by definition it will be electricity that has no better economic use.

Bitcoin then acts like an economic battery. What otherwise was of little value locally is turned into an economic asset that can be used globally. Extremely flexible demand for miners can optimize the local supply and demand for electricity, which may accelerate the energy transition by improving the economics for new renewable projects. Interestingly, however, that's not where Roque's analysis ends. He also looks at this space in terms of likely outcomes. The first possibility he considers is that Bitcoin dies. He comes to the conclusion, well, then who cares about its energy use because it's dead. Second, he looks at it from the standpoint of its role as digital gold. If Bitcoin is playing that role, it's worth comparing to gold, he thinks, and here's how he makes

the comparison. The estimated CO2 emissions for producing new gold is more than 100 million tons per year. Estimates vary, but recent studies put bitcoins around 30 million tons annually. That's less than one-third of gold CO2 emissions. And as renewables increase in the mix, Bitcoin's CO2 emission intensity should drop significantly. Note that this is still disregarding the cost of refining and storing gold, as well as the negative impact land excavation in less compliant regions that the world has on both people and the environment. So basically, he's saying that, look, if it is digital gold, let's compare it to gold, then it comes out pretty favorably. The third perspective he looks at it from is what happens if it's a breakaway success, that is,

even bigger with huge demand. He basically argues that this scenario by definition means that the value of single transactions becomes huge, with much more activity on second layers and side chains, and effectively comes to the answer that if it's worth it, i.e., people are willing to pay the fees, it's worth the energy. So to sum up this argument in total, if it's a bubble, it dies and consumes nothing. If it's digital gold, it's more efficient, and will emit much less than the money. the asset it disrupts. And if it's really successful, it's because of demand from truly value-creating applications that define our future and should be worth the electricity. To me, what makes this

argument so exciting is that rather than just being like, well, look at how much renewable energy it's using, is it really engages with the issue head on. It talks about both how Bitcoin could be an incentive for a different type of energy environment, but also looks at it from a real honest standpoint of values and what it's worth to us to have this. system. One of the things that gets lost so much in our conversations about energy is that we have to use energy for some purposes, and ultimately these are value judgments about what it's worth and what it's not. Joe Wisenthal from Bloomberg, who isn't always Bitcoin's best friend, actually put this pretty succinctly in a tweet a few weeks ago, where he said effectively that the problem with the

Bitcoin energy argument is that it's really hold aside all the details defined by whether you think Bitcoin is valuable or not. If you don't think Bitcoin's valuable, it doesn't matter if it uses some percentage of renewable energy, you just don't think it's a good use of energy. Ultimately, that's kind of true, and I think it comes down to the same thing for everything. If you don't give a crap about Christmas lights, you probably think that the fact that they use more electricity than Estonia isn't a great idea either. These are values judgments, and we live in a subjective world where we have to make them. So I like seeing these new high-level thinkers who are getting into the space actually confronting that type of issue head on, rather than just glossing it over.

Anyways, guys, I thought it was a really interesting letter. I'm excited that Roque is getting into this space. It feels to me like he's going to be a good actor in it. And I appreciate you listening. Let me know what you think about this on Twitter and I will talk to you guys more soon. Until tomorrow, be safe and take care of each other. Peace.